Credit Checks on New Customers: A Guide for SMEs Who Want to Avoid Losses
The best debt collection case is the one that never happens. Learn how to systematically credit check new business customers in Denmark, which sources to use and which rules to follow.
Why credit assessment pays off
Every time you deliver on credit, you are in effect lending money to your customer. Bad debts hit your liquidity directly, and for a small business a single large loss can be serious. A systematic credit assessment gives you a basis for deciding credit limits, payment terms and any requirement for security before you commit.
It is not about casting suspicion on new customers, but about making informed decisions, and being able to offer good terms to the customers who deserve them.
The legal framework
When you credit check a company, you are mainly working with publicly available company information. If the customer is a sole trader or a private individual, you are processing personal data, and the General Data Protection Regulation (GDPR) and the Danish Data Protection Act (databeskyttelsesloven), in force since May 2018, apply.
- You need a lawful basis, typically that the processing is necessary to enter into a contract, or a legitimate interest (GDPR Article 6(1)(b) and (f))
- You must inform the customer that you are obtaining credit information
- The information may not be kept longer than necessary
Credit reference agencies that collect and pass on information about creditworthiness must be licensed by the Danish Data Protection Agency (Datatilsynet) and are subject to special rules in the Data Protection Act.
The most important sources of credit information
1. The CVR register and published annual reports
Through the CVR register (Denmark's central business register) on virk.dk you can see a company's master data free of charge: date of incorporation, address, owners, management, status (e.g. in bankruptcy or compulsory dissolution) and history. Companies must publish annual reports, which you can also download free. Here you can see equity, profit and the balance sheet. Negative equity or repeated losses are a warning sign.
2. Credit reference agencies
Commercial providers such as Experian (which runs RKI, Denmark's main register of bad payers), Dun & Bradstreet and Creditsafe offer credit reports with a risk score, payment remarks and key figures in one place. Prices depend on the provider and subscription. Coverage varies, so for larger credit limits it can pay to use more than one source.
3. The customer's own information
Ask new customers to complete a short credit application with their CVR number, contacts, expected turnover and desired payment terms. This gives you a starting point and documents what has been agreed.
4. References and industry knowledge
References from other suppliers and your own network in the industry can supplement the formal sources, but use them as a supplement, not a replacement.
Expert tip: Set a threshold for a full credit check
It is rarely worth buying a full credit report for small orders. Set a threshold (for example DKK 20,000) above which you always do a thorough assessment. Below it, a free check of the CVR register and the latest annual report may be enough.
How to read a credit report
Do not settle for the overall risk score. Look at the underlying figures too:
- Solvency ratio (equity / total assets × 100): the lower it is, the smaller the company's buffer for absorbing losses.
- Current ratio (current assets / short-term liabilities × 100): below 100% means short-term liabilities exceed liquid assets.
- Payment remarks: entries in e.g. RKI show previous payment problems. Look at the amounts and how old they are.
- The trend over time: a single bad year means less than a persistent negative trend.
Expert tip: Use a traffic-light system
Divide customers into three groups: Green (normal terms), Yellow (shorter payment terms, partial prepayment or security) and Red (prepayment or decline). Document the decision and the reasoning so sales know what applies and you can follow up later.
Payment terms as a safety net
The credit assessment naturally leads to the decision on payment terms. Always put a specific due date on the invoice: late-payment interest under the Danish Interest Act then runs from the due date. Between businesses, payment terms of more than 30 days require your express acceptance (section 3 a of the Interest Act).
For customers in the yellow or red group you can require prepayment, part-payment on delivery, a bank guarantee or retention of title. Remember that under the Interest Act reminder fees may be at most DKK 100 per reminder for no more than 3 reminders, and that towards business customers you can also claim fixed compensation of DKK 310 for late payment.
Credit insurance
If you have large or concentrated credit risks, credit insurance may be relevant. It typically covers a large part of the loss if an insured customer does not pay, and the insurer often helps with credit assessment too. Major providers include Atradius, Coface and Allianz Trade (formerly Euler Hermes). The price depends on your turnover, industry and customer mix, so get quotes.
From policy to practice
- Write a short credit policy: who must be assessed, at what amounts, and who approves
- Build credit approval into the order flow so nothing can be delivered on credit without approval
- Review your largest customers at least once a year
Get started today
Start with three steps: check the CVR register and latest annual report for every new business customer above your threshold, set up access with a credit reference agency, and write down your credit policy. If things still go wrong, you can use InkassoHurtig to get no-obligation quotes from police-authorised debt collection agencies and lawyers. This content is general information and not legal advice.